Economics

"The reason why firms charge a lower price at higher output levels because they are able to spread their fixed costs over a large production run"
This is a true of false question and I would just like to know where i might look to answer this question, i.e. is it something to do with perfect competion or is it regarding short run production??


The answer is false. What level of output do we market economists say a firm operates at? Always, where Marginal cost=Marginal revenue. Always.
Since fixed costs contribute nothing to the calculation of marginal costs, the answer is false.


Hi John, please listen during your lectures next time - even if you don't please read your notes or your textbook. This has nothing to do with perfect competition - and has everything to do with short run production. As you know, fixed costs do not exist in the long run.

Now onto the question, I'm not allowed to give assignment answers so I'll give you a hint. Fixed costs stay the same for the whole of the firm's output. What happens as output increases? What effect does this have on their profits i.e. revenue - costs? It's pretty obvious. :D

Now go back to your assignment.

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